GM Cuts Costs to Stop Its Cash Burn

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But it could make a product race with Toyota (TM) tougher to sustain. The Japanese juggernaut already outspends GM on R&D and capital spending.

GM is also cutting advertising and marketing at a time when it needs to reach consumers badly. GM had a great reputation for making SUVs and trucks, but not passenger cars. As consumers shift to smaller, thriftier vehicles, GM needs all the marketing help it can get. Wagoner says GM has some sponsorship programs such as motor sports that will be reviewed to see if they are still effective. Anything that doesn't help GM's brand-building efforts will be cut, he said in an interview.

GM North America President Troy Clarke said the company will use alternative methods to target customers more specifically. GM will also look at cutting traditional advertising initiatives like auto racing. "We don't intend to walk away from our share of voice," Clarke said. Still, GM will be marketing eight brands with less money, while most rivals have two brands to push.

All of those cuts add up to $10 billion in GM's planned cash savings. Wagoner says GM will raise another $5 billion through selling assets and borrowing money.

Company Focus Turns to Cars

GM has already put its Hummer brand on the for-sale block. GM could also sell some of its 49% stake in GMAC, the company lending arm that is jointly owned with Cerberus Capital Management. GM is also selling some shuttered factories. President and COO Frederick "Fritz" Henderson wouldn't be specific beyond that.

But Henderson said GM could use its profitable overseas businesses as collateral to raise secured debt. If things got even worse, GM could sell an equity stake in some of its overseas business, but Henderson said the company would more likely use its international businesses as collateral.

GM hopes its latest cuts and cash-raising plays will see the company through to 2010. By then, a union-led health-care fund will take over medical benefits and GM will save $4.5 billion a year in cash. Plus, many workers making $28 an hour will be replaced by new hires making $14 an hour.

Those changes will yield big dividends. But GM will still have to prove it can make margins in passenger cars like it once did in trucks. Lutz points out that consumers in places like Europe pay more than $30,000 for small and midsize cars—almost double what they pay in the U.S. Add in GM's structural cost cuts and the company can turn a profit in cars, says David Cole, chairman of the Ann Arbor (Mich.)-based Center for Automotive Research. "As cost reductions kick in, the ability to be profitable across the whole line improves," Cole says.

True, but GM will still have to ring the register. Its brands don't command the showroom traffic and prices for passenger cars that imports do. "They may make money," Keller says. "But they won't be able to make money like they did on trucks."

That will be GM's huge challenge.

Welch is BusinessWeek's Detroit bureau chief.